Cannu vs. Galang (G.R. No. 139523) PDF

1/25/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 459
80 SUPREME COURT REPORTS ANNOTATED

Cannu vs. Galang
*
G.R. No. 139523. May 26, 2005.
SPS. FELIPE AND LETICIA CANNU, petitioners, vs. SPS.

GIL AND FERNANDINA GALANG AND NATIONAL
HOME MORTGAGE FINANCE CORPORATION,
respondents.
Contracts; Evidence; Parole Evidence Rule; A party may

present evidence to modify, explain or add to the terms of the
written agreement if he puts in issue in his pleading, among
others, its failure to express the true intent and agreement of the
parties thereto.—Inasmuch as the Deed of Sale with Assumption
of Mortgage failed to express the true intent and agreement of the
parties regarding its consideration, the same should not be fully
relied upon. The foregoing facts lead us to hold that the case on
hand falls within one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may present
evidence to modify, explain or add to the terms of the written
agreement if he puts in issue in his
_______________
* SECOND DIVISION.
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Cannu vs. Galang
pleading, among others, its failure to express the true intent and
agreement of the parties thereto. In the case at bar, when
respondents-spouses enumerated in their Answer the terms and
conditions for the sale of the property under litigation, which is
different from that stated in the Deed of Sale with Assumption
www.central.com.ph/sfsreader/session/0000016fdd36466758b19e06003600fb002c009e/t/?o=False 1/22
with Mortgage, they already put in issue the matter of

consideration. Since there is a difference as to what the true
consideration is, this Court has admitted evidence aliunde to
explain such inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out the
discrepancy and to clarify the intent of the parties.
Same; Rescission; Rescission or, more accurately, resolution,
of a party to an obligation under Article 1191 is predicated on a
breach of faith by the other party that violates the reciprocity
between them; Rescission will not be permitted for a slight or
casual breach of the contract.—Settled is the rule that rescission
or, more accurately, resolution, of a party to an obligation under
Article 1191 is predicated on a breach of faith by the other party
that violates the reciprocity between them. Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him. The injured party may choose
between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter
should become impossible. The court shall decree the rescission
claimed, unless there be just cause authorizing the fixing of a
period. Rescission will not be permitted for a slight or casual
breach of the contract. Rescission may be had only for such
breaches that are substantial and fundamental as to defeat the
object of the parties in making the agreement. The question of
whether a breach of contract is substantial depends upon the
attending circumstances and not merely on the percentage of the
amount not paid.
Same; Same; Consignation; Tender of payment does not by
itself produce legal payment, unless it is completed by
consignation.—The fact that petitioners tendered a Manager’s
Check to respondents-spouses Galang in the amount of
P278,957.00 seven months after the filing of this case is of no
moment. Tender of payment does not by itself produce legal
payment, unless it is completed by consignation. Their failure to
fulfill their obligation gave the respondents-spouses Galang the
right to rescission.
82
Cannu vs. Galang
Same; Same; Sales; The fact that the vendor accepted, through
his at-torney-in-fact, payments in installment does not constitute
waiver on his part to exercise his right to rescind the Deed of Sale
with Assumption of Mortgage.—We likewise rule that there was
no waiver on the part of petitioners to demand the rescission of
the Deed of Sale with Assumption of Mortgage. The fact that
respondents-spouses accepted, through their attorney-in-fact,
payments in installments does not constitute waiver on their part
to exercise their right to rescind the Deed of Sale with
Assumption of Mortgage. Adelina Timbang merely accepted the
installment payments as an accommodation to petitioners since
they kept on promising they would pay. However, after the lapse
of considerable time (18 months from last payment) and the
purchase price was not yet fully paid, respondents-spouses
exercised their right of rescission when they paid the outstanding
balance of the mortgage loan with NHMFC. It was only after
petitioners stopped paying that respondents-spouses moved to
exercise their right of rescission.
Same; Same; Words and Phrases; The subsidiary character of
the action for rescission applies to contracts enumerated in Article
1381 of the Civil Code; The rescission under Article 1191—on
account of breach of stipulations—is not predicated on injury to
economic interests of the party plaintiff but on the breach of faith
by the defendant, that violates the reciprocity between the parties;
In rescission under Article 1381—by reason of lesion or economic
prejudice—the cause of action is subordinated to the existence of
that prejudice, because it is the raison d’être as well as the measure
of the right to rescind; Rescission (“resolution” in the Old Civil
Code) under Article 1191 is a principal action, while rescission
under Article 1383 is a subsidiary action.—The subsidiary
character of the action for rescission applies to contracts
enumerated in Articles 1381 of the Civil Code. The contract
involved in the case before us is not one of those mentioned
therein. The provision that applies in the case at bar is Article
1191. In the concurring opinion of Justice Jose B.L. Reyes in
Universal Food Corp. v. Court of Appeals, rescission under Article
1191 was distinguished from rescission under Article 1381.
Justice J.B.L. Reyes said: . . . The rescission on account of breach
of stipulations is not predicated on injury to economic interests of
the party plaintiff but on the breach of faith by the defendant,
that violates the reciprocity between the parties. It is not a
subsidiary action, and Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder is
subordinated to anything other than the culpable breach of his
obligations by the defendant. This rescission is a principal action
retaliatory in char-
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Cannu vs. Galang
acter, it being unjust that a party be held bound to fulfill his

promises when the other violates his. As expressed in the old
Latin aphorism: “Non servanti fidem, non est fides servanda.”
Hence, the reparation of damages for the breach is purely
secondary. On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to the
existence of that prejudice, because it is the raison d’être as well
as the measure of the right to rescind. Hence, where the
defendant makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383
and 1384. But the operation of these two articles is limited to the
cases of rescission for lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does not apply to cases under
Article 1191. From the foregoing, it is clear that rescission
(“resolution” in the Old Civil Code) under Article 1191 is a
principal action, while rescission under Article 1383 is a
subsidiary action. The former is based on breach by the other
party that violates the reciprocity between the parties, while the
latter is not.
Same; Same; Actions; Where the contract does not contain a
provision authorizing its extrajudicial rescission in case one of the
parties fails to comply with what is incumbent upon him, the party
entitled to rescind should have asked for judicial intervention to
obtain a judicial declaration of rescission; In the instant case,
considering that the respondent-spouses’ Answer (with affirmative
defenses) with Counterclaim seeks for the rescission of the Deed of
Sale with Assumption of Mortgage, it behooves the court to settle
the matter once and for all than to have the case re-litigated again
on an issue already heard on the merits and which this Supreme
Court has already taken cognizance of.—It is evident that the
contract under consideration does not contain a provision
authorizing its extrajudicial rescission in case one of the parties
fails to comply with what is incumbent upon him. This being the
case, respondents-spouses should have asked for judicial
intervention to obtain a judicial declaration of rescission. Be that
as it may, and considering that respondents-spouses’ Answer
(with affirmative defenses) with Counterclaim seeks for the
rescission of the Deed of Sale with Assumption of Mortgage, it
behooves the court to settle the matter once and for all than to
have the case re-litigated again on an issue already heard on the
merits and which this court has already taken cognizance of.
Having found that petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of respondents-
spouses.
84
Cannu vs. Galang
Same; Same; Same; As a consequence of the rescission, or

more accurately, resolution of the Deed, the parties should
surrender whatever they may have received from the other.—As a
consequence of the rescission or, more accurately, resolution of
the Deed of Sale with Assumption of Mortgage, it is the duty of
the court to require the parties to surrender whatever they may
have received from the other. The parties should be restored to
their original situation. The record shows petitioners paid
respondents-spouses the amount of P75,000.00 out of the
P120,000.00 agreed upon. They also made payments to NHMFC
amounting to P55,312.47. As to the petitioners’ alleged payment
to CERF Realty of P46,616.70, except for petitioner Leticia
Cannu’s bare allegation, we find the same not to be supported by
competent evidence. As a general rule, one who pleads payment
has the burden of proving it. However, since it has been admitted
in respondents-spouses’ Answer that petitioners shall assume the
second mortgage with CERF Realty in the amount of P35,000.00,
and that Adelina Timbang, respondents-spouses’ very own
witness, testified that same has been paid, it is but proper to
return this amount to petitioners. The three amounts total
P165,312.47—the sum to be returned to petitioners.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.

Pedro Delgado Diwa for petitioners.
Eduardo A. Balauro for respondent NHMFC.
Antonio G. Castro for private respondents.
CHICO-NAZARIO, J.:
Before Us is a Petition for Review

1
on Certiorari which
seeks to set aside the decision of the Court of Appeals
dated 30 September 1998 which affirmed with modification
the decision of Branch 135 of the Regional Trial Court
(RTC) of Makati City, dismissing the
_______________
1 CA Rollo, pp. 50-56; Penned by Associate Justice Eugenio S. Labitoria

with Associate Justices Jesus M. Elbinias and Marina L. Buzon,
concurring.
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Cannu vs. Galang
complaint for Specific Performance

2
and Damages filed by
petitioners, and its Resolution dated 22 July 1999 denying
petitioners’ motion
3
for reconsideration.
A complaint for Specific Performance and Damages was
filed by petitioners-spouses Felipe and Leticia Cannu
against respondents-spouses Gil and Fernandina Galang
and the National Home Mortgage Finance Corporation
(NHMFC) before Branch 135 of the RTC of Makati, on 24
June 1993. The case was docketed as Civil Case No. 93-
2069.
The facts that gave rise to the aforesaid complaint are as
follows:
Respondents-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings & Loan Association
for P173,800.00 to purchase a house and lot located at
Pulang Lupa, Las Piñas, with an area of 150 square meters
covered by Transfer Certificate of Title (TCT) No. T-8505 in
the names of respondents-spouses. To secure payment, a
real estate mortgage was constituted on the said house and
lot in favor of Fortune Savings & Loan Association. In early
1990, NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings & Loan
Association for P173,800.00. 4
Respondent Fernandina Galang authorized her
attorney-in-fact, Adelina R. Timbang, to sell the subject
house and lot.
Petitioner Leticia Cannu agreed to buy the property for
P120,000.00 and to assume the balance of the mortgage 5
obligations with the NHMFC and with CERF Realty (the
Developer of the property).
Of the P120,000.00, the following payments were made
by petitioners:
_______________
2Id., at p. 77.
3 Records, pp. 1-12.
4 Exh. “A”; Records, p. 141.
5 The records do not disclose the nature of the transaction between
respondents-spouses and CERF Realty.
86

Cannu vs. Galang
Date Amount Paid

6
July 19, 1990 P40,000.00
7
March 13, 1991 15,000.00
8
April 6, 1991 15,000.00
9
November 28, 1991 5,000.00
Total P75,000.00
Thus, leaving a balance of P45,000.00.

A Deed 10
of Sale with Assumption of Mortgage
Obligation dated 20 August 1990 was made and entered
into by and between spouses Fernandina and Gil Galang
(vendors) and spouses Leticia and Felipe Cannu (vendees)
over the house and lot in question which contains, inter
alia, the following:
NOW, THEREFORE, for and in consideration of the sum of TWO

HUNDRED FIFTY THOUSAND PESOS (P250,000.00),
Philippine Currency, receipt of which is hereby acknowledged by
the Vendors and the assumption of the mortgage obligation, the
Vendors hereby sell, cede and transfer unto the Vendees, their
heirs, assigns and successor in interest the above-described
property together with the existing improvement thereon.
It is a special condition of this contract that the Vendees shall
assume and continue with the payment of the amortization with
the National Home Mortgage Finance Corporation Inc. in the
outstanding balance of P_______________, as of __________ and
shall comply with and abide by the terms and conditions of the
mortgage document dated Feb. 27, 1989 and identified as Doc. No.
82, Page 18, Book VII, S. of 1989 of Notary Public for Quezon City
Marites Sto. Tomas Alonzo, as if the Vendees are the original
signatories.
Petitioners immediately took possession and occupied the
house and lot.
_______________
6 Exh. “G-1”; Records, p. 149.

7 Exh. “G-3”; Id., p. 150.
8 Exh. “G-4”; Id., p. 152.
9 Exh. “G-2”; Id., p. 150.
10 Exh. “C”; Records, pp. 144-145.
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Cannu vs. Galang
Petitioners made the following payments to the NHMFC:
Date Amount Receipt No.

11
July 9, 1990 P 14,312.47 D-503986
12
March 12, 1991 8,000.00 D-729478
13
February 4, 1992 10,000.00 D-999127
14
March 31, 1993 6,000.00 E-563749
15
April 19, 1993 10,000.00 E-582432
16
April 27, 1993 7,000.00 E-618326
P 55,312.47
Petitioners
17
paid the “equity” or second mortgage to CERF
Realty.
Despite requests from Adelina R. Timbang and
Fernandina Galang to pay the balance of P45,000.00 or in
the alternative to vacate the property in question,
petitioners refused
18
to do so.
In a letter dated 29 March 1993, petitioner Leticia
Cannu informed Mr. Fermin T. Arzaga, Vice President,
Fund Management Group of the NHMFC, that the
ownership rights over the land covered by TCT No. T-8505
in the names of respondents-spouses had been ceded and
transferred to her and her husband per Deed of Sale with
Assumption of Mortgage, and that they were obligated to
assume the mortgage and pay the remaining unpaid loan
balance. Petitioners’ formal assumption
19
of mortgage was
not approved by the NHMFC.
_______________
11 Exh. “I-1”; Id., p. 154.

12 Exh. “I-3”; Id., p. 155.
13 Exh. “I-6”; Id., p. 157.
14 Exh. “I-2”; Id., p. 155.
15 Exh. “I-5”; Id., p. 156.
16 Exh. “I-4”; Id.
17 TSN, 13 October 1994, pp. 41-42.
18 Exh. “F”; Records, p. 148.
19 TSN, 13 October 1994, p. 37; Answer with Affirmative Defense of
NHMFC, Records, p. 29.
88

Cannu vs. Galang
Because the Cannus failed to fully comply with their

obligations, respondent Fernandina Galang, on 21 May
1993, paid P233,957.64 as full 20
payment of her remaining
mortgage loan with NHMFC.
Petitioners opposed the release of TCT No. T-8505 in
favor of respondents-spouses insisting that the subject
property had already been sold to them. Consequently, the
NHMFC held in abeyance the release of said TCT.
Thereupon, a Complaint for Specific Performance and
Damages was filed asking, among other things, that
petitioners (plaintiffs therein) be declared the owners of the
property involved subject to reimbursements of the amount
made by respondents-spouses (defendants therein) in
preterminating the mortgage loan with NHMFC.21
Respondent NHMFC filed its Answer. It claimed that
petitioners have no cause of action against it because they
have not submitted the formal requirements to be
considered assignees and successors-in-interest of the
property under litigation.
22
In their Answer, respondents-spouses alleged that
because of petitioners-spouses’ failure to fully pay the
consideration and to update the monthly amortizations
with the NHMFC, they paid in full the existing obligations
with NHMFC as an initial step in the rescission and
annulment of the Deed of Sale with Assumption of
Mortgage. In their counterclaim, they maintain that the
acts of petitioners in not fully complying with their
obligations give rise to rescission of the Deed of Sale with
Assumption of Mortgage with the corresponding damages.
After trial, the lower court rendered its decision
ratiocinating:
On the basis of the evidence on record, testimonial and

documentary, this Court is of the view that plaintiffs have no
cause of action either against the spouses Galang or the NHMFC.
Plaintiffs have admitted on record they failed to pay the amount
of P45,000.00 the balance due to the
_______________
20 Exhs. “L” and “L-1”; Records, p. 162.

22Id., pp. 38-45.
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Cannu vs. Galang
Galangs in consideration of the Deed of Sale With Assumption of

Mortgage Obligation (Exhs. “C” and “3”). Consequently, this is a
breach of contract and evidently a failure to comply with
obligation arising from contracts. . . In this case, NHMFC has not
been duly informed due to lack of formal requirements to
acknowledge plaintiffs as legal assignees, or legitimate tranferees
and, therefore, successors-in-interest to the property, plaintiffs
should have no legal personality to claim any right to the same
23
property.
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not been proven

even by preponderance of evidence, and, as such, plaintiffs have
no cause of action against the defendants herein. The above-
entitled case is ordered dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim, in favor
of defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of Mortgage

Obligation (Exhs. “C” and “3”) rescinded and hereby
declared the same as nullified without prejudice for
defendants-spouses Galang to return the partial payments
made by plaintiffs; and the plaintiffs are ordered, on the
other hand, to return the physical and legal possession of
the subject property to spouses Galang by way of mutual
restitution;
2. To pay defendants spouses Galang and NHMFC, each the
amount of P10,000.00 as litigation expenses, jointly and
severally;
3. To pay attorney’s fees to defendants in the amount of
P20,000.00, jointly and severally; and
4. The costs of suit.
24
5. No moral and exemplary damages awarded.
25
A Motion for Reconsideration was filed, but same was
denied. Petitioners appealed the decision of the RTC to the
Court of Appeals. On 30 September 1998, the Court of
Appeals disposed of the appeal as follows:
_______________
23 Rollo, pp. 60-61.

24 Rollo, pp. 61-62.
25 Records, p. 229.
90

Cannu vs. Galang
Obligations arising from contract have the force of law between

the contracting parties and should be complied in good faith. The
terms of a written contract are binding on the parties thereto.
Plaintiffs-appellants therefore are under obligation to pay
defendants-appellees spouses Galang the sum of P250,000.00, and
to assume the mortgage.
Records show that upon the execution of the Contract of Sale or
on July 19, 1990 plaintiffs-appellants paid defendants-appellees
spouses Galang the amount of only P40,000.00.
The next payment was made by plaintiffs-appellants on March
13, 1991 or eight (8) months after the execution of the contract.
Plaintiffs-appellants paid the amount of P5,000.00.
The next payment was made on April 6, 1991 for P15,000.00
and on November 28, 1991, for another P15,000.00.
From 1991 until the present, no other payments were made by
plaintiffs-appellants to defendants-appellees spouses Galang.
Out of the P250,000.00 purchase price which was supposed to
be paid on the day of the execution of contract in July, 1990
plaintiffs-appellants have paid, in the span of eight (8) years, from
1990 to present, the amount of only P75,000.00. Plaintiffs-
appellants should have paid the P250,000.00 at the time of the
execution of contract in 1990. Eight (8) years have already lapsed
and plaintiffs-appellants have not yet complied with their
obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the filing of this
case, of the Managerial Check in the amount of P278,957.00 dated
January 24, 1994 cannot be considered as an effective mode of
payment.
Performance or payment may be effected not by tender of
payment alone but by both tender and consignation. It is
consignation which is essential in order to extinguish plaintiffs-
appellants obligation to pay the balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with their
obligation to pay the monthly amortizations due on the mortgage.
In the span of three (3) years from 1990 to 1993, plaintiffs-
appellants made only six payments. The payments made by
plaintiffs-appellants are not even sufficient to answer for the
arrearages, interests and penalty charges.
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Cannu vs. Galang
On account of these circumstances, the rescission of the Contract

of Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed decision is
hereby AFFIRMED with modification. Defendants-appellees
spouses Galang are hereby ordered to return the partial payments
made by plaintiff-appellants in the amount of P135,000.00.
26
No pronouncement as to cost.
27
The motion for reconsideration filed by petitioners
28
was
denied by the Court of Appeals in a Resolution dated 22
July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED

WHEN IT HELD THAT PETITIONERS’ BREACH
OF THE OBLIGATION WAS SUBSTANTIAL.
WHEN IN EFFECT IT HELD THAT THERE WAS
NO SUBSTANTIAL COMPLIANCE WITH THE
OBLIGATION TO PAY THE MONTHLY
AMORTIZATION WITH NHMFC.
WHEN IT FAILED TO CONSIDER THE OTHER
FACTS AND CIRCUMSTANCES THAT
MILITATE AGAINST RESCISSION.
WHEN IT FAILED TO CONSIDER THAT 29THE
ACTION FOR RESCISSION IS SUBSIDIARY.
Before discussing the errors allegedly committed by the

Court of Appeals, it must be stated a priori that the latter
made a misappreciation of evidence regarding the
consideration of the property in litigation when it relied
solely on the Deed of Sale with Assump-
_______________
26 Rollo, pp. 38-40.

27Id., pp. 57-68.
28Id., p. 77.
29 Rollo, pp. 18-19.
92

Cannu vs. Galang
tion of Mortgage executed by the respondents-spouses

Galang and petitioners-spouses Cannu.
As above-quoted, the consideration for the house and lot
stated in the Deed of Sale with Assumption of Mortgage is
P250,000.00, plus the assumption of the balance of the
mortgage loan with NHMFC. However, after going over the
record of the case, more particularly the Answer of
respondents-spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the
outstanding loan mortgage with NHMFC, and of the
“equity” or second30
mortgage with CERF Realty (Developer
of the property).
Nowhere in the complaint and answer of the petitioners-
spouses Cannu and respondents-spouses Galang shows
that the consideration is “P250,000.00.” In fact, what is
clear is that of the P120,000.00 to be paid to the latter, only
P75,000.00 was paid to Adelina Timbang, the spouses
Galang’s attorney-in-fact. This debunks the provision in
the Deed of Sale with Assumption of Mortgage that the
amount of P250,000.00 has been received by petitioners.
Inasmuch as the Deed of Sale with Assumption of
Mortgage failed to express the true intent and agreement
of the parties regarding its consideration, the same should
not be fully relied upon. The foregoing facts lead us to hold
that the case on hand falls within one of the recognized
exceptions to the parole evidence rule. Under the Rules of
Court, a party may present evidence to modify, explain or
add to the terms of the written agreement if he puts in
issue in his pleading, among others, its failure to express
31
the true intent and agreement of the parties thereto.
In the case at bar, when respondents-spouses
enumerated in their Answer the terms and conditions for
the sale of the property
_______________
30 TSN, 13 October 1994, pp. 41-42; 09 November 1994, p. 19;

Complaint, p. 2, Records, p. 2; Answer of Respondents-spouses Galang, p.
3, Records, p. 40.
31 American Home Assurance Co. v. Tantuco Enterprises, Inc., G.R. No.
138941, 08 October 2001, 366 SCRA 740, 746-747.
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VOL. 459, MAY 26, 2005 93

Cannu vs. Galang
under litigation, which is different from that stated in the

Deed of Sale with Assumption with Mortgage, they already
put in issue the matter of consideration. Since there is a
difference as to what the true consideration is, this Court
has admitted evidence aliunde to explain such
inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out the
discrepancy and to clarify the intent
32
of the parties.
As regards the computation of petitioners as to the
breakdown of the P250,000.00 consideration, we find the
same to be self-serving and unsupported by evidence.
On the first assigned error, petitioners argue that the
Court erred when it ruled that their breach of the
obligation was substantial.
Settled 33is the rule that rescission or, more accurately,
34
resolution, of a party to an obligation under Article 1191
is predicated on a breach of faith by 35the other party that
violates the reciprocity between them. Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual

breach of the contract. Rescission may be had only for such
breaches that are
_______________
32 Exh. “H”; Records, p. 153.

33 As used in the Old Civil Code.
34 Civil Code.
35 Uy v. Court of Appeals, G.R. No. 120465, 09 September 1999, 314
SCRA 69, 81; Romero v. Court of Appeals, G.R. No. 107207, 23 November
1995, 250 SCRA 223, 235.
94

Cannu vs. Galang
substantial and fundamental as to 36

defeat the object of the
parties in making the agreement. The question of whether
a breach of contract is 37substantial depends upon the
attending circumstances and not merely on the
percentage of the amount not paid.
In the case at bar, we find petitioners’ failure to pay the
remaining balance of P45,000.00 to be substantial. Even
assuming arguendo that only said amount was left out of
the supposed consideration of P250,000.00, or eighteen
(18%) percent thereof, this percentage is still substantial.
Taken together with the fact that the last payment made
was on 28 November 1991, eighteen months before the
respondent Fernandina Galang paid the outstanding
balance of the mortgage loan with NHMFC, the intention
of petitioners to renege on their obligation is utterly clear.
Citing Massive 38
Construction, Inc. v. Intermediate
Appellate Court, petitioners ask that they be granted
additional time to complete their obligation. Under the
facts of the case, to give petitioners additional time to
comply with their obligation will be putting premium on
their blatant non-compliance of their obligation. They had
all the time to do what was required of them (i.e., pay the
P45,000.00 balance and to properly assume the mortgage
loan with the NHMFC), but still they failed to comply.
Despite demands
39
for them to pay the balance, no payments
were made.
The fact that petitioners tendered a Manager’s Check to
respondents-spouses Galang in the amount of P278,957.00
seven months after the filing of this case is of no moment.
Tender of payment does not by itself produce legal
payment, unless it is completed by
_______________
36 Ang v. Court of Appeals, G.R. No. 80058, 13 February 1989, 170

SCRA 286, 296; Tan v. Court of Appeals, G.R. No. 80479, 28 July 1989,
175 SCRA 656, 663.
37 Intestate Estate of the Late Ricardo P. Presbitero, Sr. v. Court of
Appeals, G.R. No. 102432, 21 January 1993, 217 SCRA 372, 384.
38 G.R. Nos. 70310-11, 01 June 1993, 223 SCRA 1, 10.
39 TSN, 09 November 1994, pp. 12, 16.
95
VOL. 459, MAY 26, 2005 95

Cannu vs. Galang
40
40
consignation. Their failure to fulfill their obligation gave
the respondents-spouses Galang the right to rescission.
Anent the second assigned error, we find that
petitioners were not religious in paying the amortization
with the NHMFC. As admitted by them, in the span of
three years from 41
1990 to 1993, their payments covered only
thirty months. This, indeed, constitutes another breach or
violation of the Deed of Sale with Assumption of Mortgage.
On top of this, there was no formal assumption of the
mortgage obligation with42NHMFC because of the lack of
approval by the NHMFC on account of petitioners’ non-
submission of requirements in order to be considered as
assignees/successors-in-interest
43
over the property covered
by the mortgage obligation.
On the third assigned error, petitioners claim there was
no clear evidence to show that respondents-spouses Galang
demanded from them a strict and/or faithful compliance of
the Deed of Sale with Assumption of Mortgage.
We do not agree.
There is sufficient evidence showing that demands were
made from petitioners to comply with their obligation.
Adelina R. Timbang, attorney-in-fact of respondents-
spouses, per instruction of respondent Fernandina Galang,
made constant follow-ups after the last payment made on 44
28 November 1991, but petitioners did not pay.45
Respondent Fernandina Galang stated in her Answer
that upon her arrival from America in October 1992, she
demanded from petitioners the complete compliance of
their obligation by paying the full amount of the
consideration (P120,000.00) or in the alternative to vacate
the property in question, but still, petitioners refused to
fulfill their obligations under the Deed of Sale with As-
_______________
40 Philippine National Bank v. Relativo, G.R. No. L-5298, 29 October

1952, 92 Phil. 203, 206.
41 Rollo, p. 25.
42 TSN, 13 October 1994, p. 37.
43 Records, p. 29.
44 TSN, 09 November 1994, p. 12.
96

Cannu vs. Galang
sumption of Mortgage. Sometime in March 1993, due to the

fact that full payment has not been paid and that the
monthly amortizations with the NHMFC have not been
fully updated, she made her intentions clear with
petitioner Leticia Cannu that she will rescind or annul the
Deed of Sale with Assumption of Mortgage.
We likewise rule that there was no waiver on the part of
petitioners to demand the rescission of the Deed of Sale
with Assumption of Mortgage. The fact that respondents-
spouses accepted, through their attorney-in-fact, payments
in installments does not constitute waiver on their part to
exercise their right to rescind the Deed of Sale with
Assumption of Mortgage. Adelina Timbang merely accepted
the installment payments as an accommodation to
petitioners since they kept on promising they would pay.
However, after the lapse of considerable time (18 months
from last payment) and the purchase price was not yet fully
paid, respondents-spouses exercised their right of
rescission when they paid the outstanding balance of the
mortgage loan with NHMFC. It was only after petitioners
stopped paying that respondents-spouses moved to exercise
their right of rescission. 46
Petitioners cite the case of Angeles v. Calasanz to
support their claim that respondents-spouses waived their
right to rescind. We cannot apply this case since it is not on
all fours with the case before us. First, in Angeles, the
breach was only slight and casual which is not true in the
case before us. Second, in Angeles, the buyer had already
paid more than the principal obligation, while in the
instant case, the buyers (petitioners) did not pay
P45,000.00 of the P120,000.00 they were obligated to pay.
We find petitioners’ statement that there is no evidence
of prejudice or damage to justify rescission in favor of
respondents-spouses to be unfounded. The damage suffered
by respondents-spouses is the effect of petitioners’ failure
to fully comply with their obligation, that is, their failure to
pay the remaining P45,000.00 and to update the
amortizations on the mortgage loan with the NHMFC.
Petitioners have in their possession the property under
_______________
46 G.R. No. L-42283, 18 March 1985, 135 SCRA 323, 332.
97
VOL. 459, MAY 26, 2005 97

Cannu vs. Galang
litigation. Having parted with their house and lot,

respondents-spouses should be fully compensated for it, not
only monetarily, but also as to the terms and conditions
agreed upon by the parties. This did not happen in the case
before us. 47
Citing Seva v. Berwin & Co., Inc., petitioners argue
that no rescission should be decreed because there is no
evidence on record that respondent Fernandina Galang is
ready, willing and able to comply with her own obligation
to restore to them the total payments they made. They
added that no allegation to that effect is contained in
respondents-spouses’ Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall
squarely with the case on hand. In the former, the failure
of one party to perform his obligation was the fault of the
other party, while in the case on hand, failure on the part
of petitioners to perform their obligation was due to their
own fault.
Second, what is stated in the book of Justice Edgardo L.
Paras is “[i]t (referring to the right to rescind or resolve)
can be demanded only if the plaintiff is ready, willing and
able to comply with his own obligation, and the other is
not.” In other words, if one party has complied or fulfilled
his obligation, and the other has not, then the former can
exercise his right to rescind. In this case, respondents-
spouses complied with their obligation when they gave the
possession of the property in question to petitioners. Thus,
they have the right to ask for the rescission of the Deed of
Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on
Article 1383 of the Civil Code, maintain that the Court of
Appeals erred when it failed to consider that the action for
rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
_______________
47 48 Phil. 581; Civil Code of the Philippines by Paras, Vol. 4 (1994 Ed.).
98

Cannu vs. Galang
The subsidiary character of the action for rescission

48
applies
to contracts enumerated in Articles 1381 of the Civil
Code. The contract involved in the case before us is not one
of those mentioned therein. The provision that applies in

the case at bar is Article 1191.
In the concurring opinion of Justice Jose
49
B.L. Reyes in
Universal Food Corp. v. Court of Appeals, rescission under
Article 1191 was distinguished from rescission under
Article 1381. Justice J.B.L. Reyes said:
. . . The rescission on account of breach of stipulations is not

predicated on injury to economic interests of the party plaintiff
but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that
the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the defendant.
This rescission is a principal action retaliatory in character, it
being unjust that a party be held bound to fulfill his promises
when the other violates his. As expressed in the old Latin
aphorism: “Non servanti fidem, non est fides servanda.” Hence,
the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to the
existence of that
_______________
48 Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claim due them;
(4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
49 G.R. No. L-29155, 13 May 1970, 33 SCRA 1, 22-23.
99
VOL. 459, MAY 26, 2005 99

Cannu vs. Galang
prejudice, because it is the raison d’être as well as the measure of

the right to rescind. Hence, where the defendant makes good the
damages caused, the action cannot be maintained or continued, as
expressly provided in Articles 1383 and 1384. But the operation of

these two articles is limited to the cases of rescission for lesion
enumerated in Article 1381 of the Civil Code of the Philippines,
and does not apply to cases under Article 1191.
From the foregoing, it is clear that rescission (“resolution”

in the Old Civil Code) under Article 1191 is a principal
action, while rescission under Article 1383 is a subsidiary
action. The former is based on breach by the other party
that violates the reciprocity between the parties, while the
latter is not.
In the case at bar, the reciprocity between the parties
was violated when petitioners failed to fully pay the
balance of P45,000.00 to respondents-spouses and their
failure to update their amortizations with the NHMFC.
Petitioners maintain that inasmuch as respondents-
spouses Galang were not granted the right to unilaterally
rescind the sale under the Deed of Sale with Assumption of
Mortgage, they should have first asked the court for the
rescission thereof before they fully paid the outstanding
balance of the mortgage loan with the NHMFC. They claim
that such payment is a unilateral act of rescission which
violates existing jurisprudence.
50
In Tan v. Court of Appeals, this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones

in case one of the obligors should not comply with what is
incumbent upon him is clear from a reading of the Civil Code
provisions. However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially;
it cannot be exercised solely on a party’s own judgment that the
other has committed a breach of the obligation. Where there is
nothing in the contract empowering the petitioner to rescind it
without resort to the courts, the petitioner’s action in unilaterally
terminating the contract in this case is unjustified.
_______________
50 G.R. No. 80479, 28 July 1989, 175 SCRA 656, 661-662.
100

Cannu vs. Galang
It is evident that the contract under consideration does not

contain a provision authorizing its extrajudicial rescission
in case one of the parties fails to comply with what is
incumbent upon him. This being the case, respondents-

spouses should have asked for judicial intervention to
obtain a judicial declaration of rescission. Be that as it
may, and considering that respondents-spouses’ Answer
(with affirmative defenses) with Counterclaim seeks for the
rescission of the Deed of Sale with Assumption of
Mortgage, it behooves the court to settle the matter once
and for all than to have the case re-litigated again on an
issue already heard on the merits and which this court has
already taken cognizance of. Having found that petitioners
seriously breached the contract, we, therefore, declare the
same is rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately,
resolution of the Deed of Sale with Assumption of
Mortgage, it is the duty of the court to require the parties
to surrender whatever they may have received from the
other. The 51
parties should be restored to their original
situation.
The record shows petitioners paid respondents-spouses
the amount of P75,000.00 out of the P120,000.00 agreed
upon. They also made payments to NHMFC amounting to
P55,312.47. As to the petitioners’ alleged payment to CERF
Realty of P46,616.70, except for petitioner Leticia Cannu’s
bare allegation, we find the same not to be supported by
competent evidence. As a general rule, 52
one who pleads
payment has the burden of proving it. However, since it
has been admitted in respondents-spouses’ Answer that
petitioners shall assume the second mortgage with CERF
Realty in the amount of P35,000.00, and that Adelina
Timbang, 53
respondents-spouses’ very own witness,
testified that same has been paid, it is
_______________
51 Ang v. Court of Appeals, G.R. No. 80058, 13 February 1989, 170

SCRA 286, 297.
52 Jimenez v. National Labor Relations Commission, G.R. No. 116960,
02 April 1996, 256 SCRA 84, 89.
53 TSN, 09 November 1994, p. 19.
101
VOL. 459, MAY 26, 2005 101

Cannu vs. Galang
but proper to return this amount to petitioners. The three

amounts total P165,312.47—the sum to be returned to
petitioners.
WHEREFORE, premises considered, the decision of the

Court of Appeals is hereby AFFIRMED with
MODIFICATION. Spouses Gil and Fernandina Galang are
hereby ordered to return the partial payments made by
petitioners in the amount of P165,312.47. With costs.
SO ORDERED.
Puno (Actg. C.J., Chairman), Austria-Martinez and

Callejo, Sr., JJ., concur.
Tinga, J., Out of the Country.
Judgment affirmed with modification.
Notes.—No express trust concerning an immovable or

any interest therein may be proved by parole evidence.
(Ong Ching Po vs. Court of Appeals, 239 SCRA 341 [1994])
Documents must be taken as containing all the terms of
the agreement between the parties when there appears to
be no ambiguity in the language of said documents nor any
failure to express the true intent and agreement of the
parties. (Salame vs. Court of Appeals, 239 SCRA 356
[1994])
——o0o——
102
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1/25/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 459

80 SUPREME COURT REPORTS ANNOTATED

SPS. FELIPE AND LETICIA CANNU, petitioners, vs. SPS.

Contracts; Evidence; Parole Evidence Rule; A party may

VOL. 459, MAY 26, 2005 81

Cannu vs. Galang

with Mortgage, they already put in issue the matter of

82 SUPREME COURT REPORTS ANNOTATED

Cannu vs. Galang

VOL. 459, MAY 26, 2005 83

Cannu vs. Galang

acter, it being unjust that a party be held bound to fulfill his

84 SUPREME COURT REPORTS ANNOTATED

Cannu vs. Galang

Same; Same; Same; As a consequence of the rescission, or

PETITION for review on certiorari of the decision and

The facts are stated in the opinion of the Court.

Before Us is a Petition for Review

1 CA Rollo, pp. 50-56; Penned by Associate Justice Eugenio S. Labitoria

VOL. 459, MAY 26, 2005 85

complaint for Specific Performance

86 SUPREME COURT REPORTS ANNOTATED

Date Amount Paid

Thus, leaving a balance of P45,000.00.

NOW, THEREFORE, for and in consideration of the sum of TWO

6 Exh. “G-1”; Records, p. 149.

VOL. 459, MAY 26, 2005 87

Petitioners made the following payments to the NHMFC:

Date Amount Receipt No.

11 Exh. “I-1”; Id., p. 154.

88 SUPREME COURT REPORTS ANNOTATED

Cannu vs. Galang

Because the Cannus failed to fully comply with their

On the basis of the evidence on record, testimonial and

20 Exhs. “L” and “L-1”; Records, p. 162.

VOL. 459, MAY 26, 2005 89

Cannu vs. Galang

Galangs in consideration of the Deed of Sale With Assumption of

The decretal portion of the decision reads:

Premises considered, the foregoing complaint has not been proven

1. Ordering the Deed of Sale With Assumption of Mortgage

23 Rollo, pp. 60-61.

90 SUPREME COURT REPORTS ANNOTATED

Obligations arising from contract have the force of law between

VOL. 459, MAY 26, 2005 91

On account of these circumstances, the rescission of the Contract

1. THE HONORABLE COURT OF APPEALS ERRED

Before discussing the errors allegedly committed by the

26 Rollo, pp. 38-40.

92 SUPREME COURT REPORTS ANNOTATED

tion of Mortgage executed by the respondents-spouses

30 TSN, 13 October 1994, pp. 41-42; 09 November 1994, p. 19;

VOL. 459, MAY 26, 2005 93

under litigation, which is different from that stated in the

Art. 1191. The power to rescind obligations is implied in

Rescission will not be permitted for a slight or casual

32 Exh. “H”; Records, p. 153.

94 SUPREME COURT REPORTS ANNOTATED

substantial and fundamental as to 36

36 Ang v. Court of Appeals, G.R. No. 80058, 13 February 1989, 170

VOL. 459, MAY 26, 2005 95

40 Philippine National Bank v. Relativo, G.R. No. L-5298, 29 October

96 SUPREME COURT REPORTS ANNOTATED